Florida Community Association Law Blog
Estoppel Requests

In 1963 the Florida Legislature passed the Condominium Act, a law allowing creation of condominiums as real property.  Joined by their Common Law counterparts, cooperatives and deed restricted communities, a new era began in Florida. Millions of people found that they could enjoy the benefits of living on the water and in communities with extensive amenities that they would otherwise not be able to afford. These communities need an operating entity, an association, in order to function. The association provides a variety of functions local government would otherwise have to spend tax dollars on, such as code enforcement, recreation, security, storm and sanitary sewers, utilities and maintenance of common properties.

Associations are usually not-for-profit corporations, where every owner is a member and has voting rights.  The association is run by an elected board of directors. Elections to the board of directors are open to all members of the community.  The boards of directors are volunteers with the thankless job of operating the community, collecting the "taxes" called assessments and enforcing the deed restrictions.  Deed restrictions, which are recorded in the public records, include the rights and obligations of owners and the association, including provisions about setting and collecting assessments.  Every potential owner has the right to obtain a copy from the seller, fully read them and understand their rights and obligations before they buy a home and move into a community.  Millions of people voluntarily live in communities with deed restrictions and assessments, but this lifestyle is not for everyone.

To operate, associations must levy assessments. Depending on the type of community, the amount of the assessments may be a few hundred dollars per year, or hundreds of dollars or more per month. Assessments are the lifeblood of the community, and in order to function, it’s necessary that 100% of the homeowners pay their share. No matter what the dollar amount of assessments, if thirty percent of people are not paying, that is a budget shortfall of thirty percent. With gaping holes in the budget, directors are forced to raise assessments on all owners who pay.  This is unfair to the people who meet their obligations. The board of directors is obligated by the deed restrictions to collect assessments from delinquent owners.  The question is, how?

The process of making and collecting assessments is set forth in the deed restrictions as well as state law and is totally transparent.  All owners are given notice of the meeting at which a budget will be adopted, notice of the amount they have to pay, and the due date.  After the due date, they often receive several notices from the association or management that they are delinquent.  As a last resort, legal procedures are started. First, the law requires that owners receive an initial demand by certified mail.  They have at least 30 days to pay or make arrangements to pay before further legal action is taken.  If they ignore that, a lien can be filed and sent to the owner by certified mail. They then have at least 30 more days to pay or make arrangements to pay before further action can be taken.  That amounts to at least five opportunities for people in distress to contact their association and discuss a payment plan before litigation is filed.  At this point the board has no other options to force the owner to pay without going to court.

In court the association has the same powers as a second mortgage holder or mechanics lien. It can either seek a personal money judgment against a delinquent owner or foreclose the lien.  This right has existed for hundreds of years, going back to the Common Law of England. Money judgments are very difficult to collect in Florida, as a result we have been labeled a "debtors paradise".

In the alternative, an association can foreclose its lien.  Foreclosure of a lien is a drastic remedy, but it does not depend on finding a judgment debtor with assets that can be seized and sold.  In a lien foreclosure, a suit is filed and served, and after several motions are filed, a foreclosure judgment can be entered. The process takes an average of about seven months to conclude.  Owners in litigation receive copies of every pleading throughout a lawsuit.  At any point in the process, a debtor can hire their own lawyer or call the association’s lawyer and ask for a payment plan. The goal is payment, not punishment. Foreclosure is a severe remedy, but are communities supposed to fall apart because a large number of the neighbors do not pay their obligations? If the debtors are willing to lose their home or do not seek help at the many points in the process where a mere phone call could resolve the issue, what are the associations supposed to do about it? Until about 4 years ago, only about 2-3% of members were ever delinquent and most budgets could afford that and more casual methods of collection could be used. That is now distant history. 

If a foreclosure proceeds to the end, an open sale takes place where anybody is free to bid on it.  The association, as judgment holder, starts the bidding.  If nobody outbids it, the association takes title.  Other bidders include investors who buy properties at public sales every day.  The high bidder takes title subject to existing mortgages and taxes. Everything is transparent and is a public record. There is no scam here; everybody in the process has had months to resolve it and done nothing to stop it. 

After a sale and issuance of title, a buyer has the legal right to take possession of and rent or sell the property, subject to the first mortgage. A property can be purchased for a few thousand dollars at a lien foreclosure, but the unpaid mortgage is probably twice as much as the appraised value and in first mortgage foreclosure. When an association takes title, the directors are often so overwhelmed that they have no interest in taking on burden of renting a foreclosed home, so they look for someone to lease it or buy it, subject to existing mortgages and taxes to recover the lost assessments and legal fees. These are all legitimate lawful actions that have taken place in different forms for hundreds of years.  This is no different than unpaid subcontractors who are forced to file and foreclose Mechanics Liens, if they are unpaid for work or materials on a construction job. Title to the property is sold to the highest bidder in the same fashion.

Concerning short sales, associations are rightly outraged by first mortgage holders who offer the association pennies on the dollar for delinquent assessments to allow a proposed deal to proceed. The association is in a lose-lose situation  where it will either lose thousands of dollars in assessments in exchange for the sale of the home, or be forced to continue its own foreclosure, taking title and renting it, while the mortgage holder dawdles. No volunteer director enjoys being put in that position.

The remedy to the problem is not to require foreclosing associations to give the lender notice of a foreclosure.  Even if the law was changed, lenders never pay anything more than they are legally obligated to pay.  Often they cannot be found, because the loan has been sold so many times. Or, they ignore all correspondence. One legislator introduced legislation that lenders who foreclose and take title become responsible for all past due assessments.  If that occurs, then it is likely that lenders will force all borrowers to set up an escrow for potential past due assessments, making housing less affordable for everybody. 

The system is clearly broken.  Another solution has been proposed by the legislature to allow non-judicial foreclosures.  That will not work.   There are horror stories of people who had to spend thousands of dollars and months to defend themselves from mortgage foreclosures where they had no mortgage or the plaintiff did not own and have the legal right to foreclose. If non-judicial foreclosures are allowed, people will be out of their homes more quickly with less due process. 

The real answer is for people to take personal responsibility for their actions.  Hopefully the recent coverage by your paper will wake people up to the moral hazard of not paying the assessments that they agreed to upon purchasing their home.  Despite the current economic circumstances, the vast majority of people living in communities are satisfied that their directors are working as hard as they can to protect the welfare of all members, and enjoy lifestyles that would be unattainable in a non-deed restricted community.